Concentrated flows drive Chinese MMF assets rebound, says Fitch

But it masks uneven flow distribution and fund subscriptions concentrated on a small number of providers, and the growth path is likely to remain volatile on the back of evolving liquidity and interest rate conditions.

Concentrated investor flows in CMMFs reflect the nervousness in short-term markets, as highlighted by the recent return of interest-rate volatility. In this environment, institutional investors typically prefer funds where their investment is small relative to the size of the fund to shield themselves against the impact of large redemptions, should they occur.

Fitch believes the market would benefit from more diversified shares among fund managers. But ongoing volatility will prevent a broader-based demand for CMMFs, although higher interest rates in the market help the growth of the sector. The end of 2013 may again prove challenging for CMMFs, as banks could source a higher share of deposits using competitive rates and force fund managers to adapt their liquidity profiles.

Total AUM in CMMFs rose 67 per cent year on year to CNY500bn at the end of Q313, according to Fitch's calculations. This is just three per cent short of the level in Q113 before the June liquidity crunch. The high growth of retail CMMF assets (+CNY120bn in Q313) was driven by one fund launched in Q213, which attracted 40 per cent of new money.

Institutional fund assets rose 50 per cent in Q313, but remained well below the level of Q113. The money was highly concentrated, with 95 per cent of net inflows committed to 10 institutional CMMF products. Consequently, institutional CMMFs market share dropped further to about 37 per cent.